In January 2013, Will Morris, director of
Global Tax Policy at General Electric Co., the US business giant, wrote a
'Dear Pascal' letter to Pascal Saint-Amans, head of the Center for Tax Policy
at The Organisation for Economic Co-operation and Development (OECD), a
Paris-based think-tank for the governments of 34 mainly developed economies,
including Ireland. The letter was about proposed changes on what is termed
'Permanent Establishment' (PE), which would have the effect of "fundamentally
changing" the tax rules that would apply to high tech companies in particular.
14-page letter [pdf] was issued in his capacity as head of the Business and
Industry Advisory Committee (BIAC) lobby group and the words 'concern,'
'concerns' and 'concerned' were used 30 times.
What has been dramatic since the Morris letter is
the speed in which the sands moved under the feet of the beneficiaries of an
out-of-control international tax system. Commitments from the leaders of the 19
leading developed and emerging economies in the G-20 to tackling massive
corporate tax avoidance, will have the effect of "fundamentally changing"
the status quo for the international tax industry and the politicians that
While US companies are the most prominent in
corporate tax avoidance and evasion, the US government is leading the
international campaign against personal tax evasion.
In 2009, UBS, the Swiss banking giant, admitted
that it aided US taxpayers to hide money abroad. UBS paid $780m in fines and
turned over the names of more than 4,000 US taxpayers with accounts to settle US
charges, effectively ending decades of Swiss bank secrecy. This week it was
disclosed that more than half of Switzerland’s 300 cantonal banks (mid-size to
small) have chosen to take part in a US disclosure programme to identify
undeclared US assets under the terms of the Swiss-US tax deal signed in August.
Swiss banks are sending letters to current or
former US clients warning that information about their accounts will be soon
turned over to the IRS (US Internal Revenue Service).
a special report last July on corporate tax avoidance, Reuters said the
tactic of having a 'Permanent Establishment' (PE) in a jurisdiction other than a
main area of business is termed by the OECD an "artificial avoidance of PE
status," and it wants to change things so the international tax system more
closely resembles economic reality. It aims to tweak the guidelines - - which
countries including Germany, the UK and France want to change - - so that
countries where companies make lots of money can claim a commensurate share of
Reuters says that many firms especially in
tech, where they can easily operate across borders, use the tactic. Reuters
analysed the accounts of the top 50 US software, internet and computer hardware
companies by market capitalization and found that PE structures that help them
avoid tax are currently used by 74% of them.
"Sixteen of the 20 biggest US software companies
by market value, including Microsoft, Adobe and Citrix, do not declare tax
residences for their main businesses in their major European markets, their
accounts show. Instead, they report software sales in Ireland, Switzerland and
the Netherlands, countries which have smaller populations and offer lower
corporate tax rates."
OECD: Base Erosion and Profit Shifting
Top 5 US tech firms held $515bn in cash at end June
US company profits per Irish employee at $970,000; Tax paid in
Ireland at $25,000
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Reuters: The biggest tech tax havens
Said Business School, Oxford, April 2013: Pascal Saint-Amans (director, Centre for Tax Policy and Administration, OECD) illustrates how the OECD Base Erosion and Profit Shifting (BEPS) project studies whether and why the current corporate tax system allows for the allocation of taxable profits to locations different from those where the actual business activity takes place. The aim of the project is to provide complete and effective policies for countries to combat base erosion and profit shifting.
Said Business School, Oxford, April 2013: Will Morris (director, Global Tax Policy, GE) advocates incremental changes to the corporate income tax system to attain a more sustainable, sensible system. He also stresses the need for quick action and collaboration among business, governments and the OECD to address the problems in the current international corporate tax system.